Canadian Dollar Falls Below 71 Cents U.S. Amid Widening Interest Rate Gap
The Canadian dollar dropped below 71 cents U.S. for the first time since July as investors bet on further U.S. Federal Reserve rate hikes, widening the interest rate differential with the Bank of Canada.
The Canadian dollar fell below 71 cents U.S. in early trading on Wednesday, marking its lowest level against the American currency since July. The decline is driven by widening interest rate differentials between Canada and the United States, with the loonie down 1.7 per cent this month.
Investors have increased bets on additional U.S. interest rate hikes at the Oct. 28 meeting following a recent 25 basis point increase by the Federal Reserve. This move pushed the Fed’s funds rate to a range of 3.75 per cent to four per cent. In contrast, the Bank of Canada has held its overnight lending rate steady at 2.25 per cent for the past seven consecutive meetings.
Karl Schamotta noted that the loonie's weakness is largely a function of the U.S. dollar's strength. Over the past five days, the world’s 10 major currencies were down between 0.19 per cent and nearly one per cent against the U.S. dollar. Despite these pressures, Shaun Osborne described the Canadian dollar as the "best of the rest" among G10 currencies from yesterday to today.
Analysts expect negative returns for the loonie versus the U.S. dollar in October and November, citing typical fourth-quarter weakness. Meanwhile, the Australian dollar is nearing par with the Canadian dollar for the first time in nine years.